There is a growing popularity of Self-managed superannuation funds (SMSFs) in Australia’s retirement system. These are private superannuation funds for retirement purposes, regulated by the Australian Taxation Office (ATO), to be managed by investors based on their own research, financial & legal knowledge and risk calculation.
As per Australian Government data for the period 2012-2017, the number of SMSFs grew from 473,000 to 597,000, marking a growth of 26%. In addition, SMSF assets grew by $274.3 billion or 65% over the five-year period. They offer several benefits such as concessional tax rates, flexibility over fund management, cost effectiveness and greater visibility over investment. Trustees enjoy variety of investment options such as property, term deposits, physical gold and other commodities, cash accounts, direct shares, etc. Advanced technology is playing a crucial role in ensuring that financial advisors can engage more deeply with their SMSF customers. Such funds also provide the ability to pool resources with up to three other members ensuring access to investment opportunities that may not be available otherwise.
We cannot ignore the statistics which point towards declining growth rate in new SMSFs since July 2017, with the introduction of reduced fund contribution cap of $1.6 M. However, 2018-19 Budget is offering enhanced stability and cost advantages for super funds. In this regard, it is worth noting that from July 2019, there is a proposal to increase the number of members of a SMSF from the current level of four to a six. This is particularly beneficial for larger families setting up new funds or for them to be able to merge their existing funds or even include children. This possible move is expected to overcome the negatives associated with contribution cap of $1.6 M. Also, this would offer benefits of reduced cost and enhanced scale.
There is a proposal to amend the law so that SMSFs with a good compliance history and record-keeping will only need to be audited once every three years, instead of the current annual requirement. This is extremely beneficial for trustees who have clear audit reports and are involved in timely annual return lodging. The move is expected to reduce the unnecessary costs, effort and burden on trustees. It is also proposed that the Government will provide additional time for senior citizens (aged 65 to 74) to boost their retirement savings, by introducing an exemption from the superannuation work test where the superannuation balance is below a certain level and will also permit voluntary superannuation contributions in the first year.
Given the potential growth prospects of SMSFs, many investors remain positive on the stocks of SMSF administrators, like Class Ltd (ASX: CL1). The firm provides Innovative SMSF software for fast and efficient administration of self-managed super funds. Although its share price has plunged sharply by 37 % from $2.350 in 2018 beginning to $1.770 as on December 05, 2018, the scenario looks decent given the changes to be introduced at broad level. Then, OneVue Holdings Limited (ASX: OVH), is another player in the fintech field that offers efficient SMSF management services, even though its share price has also fallen drastically by 38% from $0.775 in 2018 beginning to $0.565 as on December 05, 2018.
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